How does VPN encryption work? (And why it’s important)

Virtual Private Network (VPN) service providers have straightforward platforms. In most cases, you can connect to a free VPN server just by clicking a few buttons and choosing your preferred server location.

Most people actually use VPN services without understanding how they work. Although convenient, you won’t maximize your server this way.

All VPN servers redirect your traffic through a proxy tunnel, but they use different encapsulation and encryption methods—which ultimately dictate your overall security. 

Each method has its pros and cons. And even if you’re unfamiliar with them, you’ll at least notice that servers process data differently.

Don’t worry if you have no idea how VPNs work. We researched official cybersecurity sources and independent tech sites to give you first-hand insights into VPN tunneling, encryption, and encapsulation.

By the end of this article, you’ll know which VPN service suits you best.

Please read without skipping. We’ll explain the number one reason why VPN servers can’t wholly combat identity theft. A false sense of security further compromises your data privacy.

So, how does VPN encryption work? Let’s find out!

Everything you should know about how VPNs work

Again, most VPNs are easy to use. Just turn on the app and select your preferred location; your service provider will take care of the tunneling.

However, knowing how VPNs work is different from using them. You might find the complex instructions and new terminologies confusing, especially if you have no prior IT experience.

To get a good grasp of VPN servers, let’s start with encryption and encapsulation. VPN services can’t create proxy tunnels without them.

We’ll flesh out the details later, although we want to give you an idea of what they do before proceeding.

Encryption generally involves code conversions. The goal is to hide the contents of your traffic by converting individual requests into alternative texts.

Only authorized users can decrypt encrypted messages. To third parties, anything encrypted will appear as scrambled, indecipherable walls of text.

Meanwhile, encapsulation focuses on camouflage. An encapsulated VPN server disguises your traffic by hiding data packets in entirely different units, thus letting you surf undetected.

Browsing with and without VPNs

Before we further talk about what VPN servers do, let’s look at your regular internet browsing session. 

Are you really unprotected? We would probably say yes if you asked us this question a decade ago.

Nowadays, most websites provide a standard level of data encryption through SSL certificates and Hypertext Transfer Protocol Secure (HTTPS). They establish secure, encrypted connections from devices to website servers.

Although SSL certificates and HTTPS have been around since the 90s, few websites initially bothered using them. Google only changed the game in 2017.

It started flagging sites without SSL certificates as insecure. No law prevents websites from operating without an HTTPS, but browsers now warn users about potential threats.

As a result, an influx of sites registered for SSL certificates. Recent statistics show that nearly 80% of all indexed websites have HTTPS, although some resources claim that 95% of published sites have SSL certificates.

However, SSL and HTTPS don’t provide 24/7 security. They encrypt in-transit data, but they’ll immediately decrypt them upon reaching the designated website. Third parties can still view your traffic before and after the transfer.

Now, here’s where a VPN comes in useful.

If you want your data to stay secure, you’ll need a VPN service to encrypt all the traffic from your device. That way, it stays indecipherable to snooping third parties.

Again, a proxy tunnel consists of encapsulation and encryption. Encapsulation hides your traffic in discrete data packets for anonymity, and encryption scrambles your data so that no one can view your server requests.

For a simpler representation of VPN services, think of your traffic as an email message. Encapsulation hides your email address; encryption scrambles the email’s contents.

VPN ciphers and decrypting encrypted data

Cipher refers to the algorithm used for decrypting data. There are as many ciphers as there are encryption keys, and each option offers different levels of security.

Ciphers have various purposes. But for this article, we’ll only examine how VPN service providers use them to encrypt and decrypt their clients’ traffic.

The overall strength of a VPN cipher depends on two factors: formula strength and key length.

At a basic level, think of ciphers as passwords. A lengthy, complex cipher formula has infinite combinations, so brute-force hacking it will take billions of years.

VPN services typically use the following ciphers nowadays:

1. Advanced Encryption Standard (AES)

AES is a symmetric-key block cipher, meaning the same encryption key encrypts and decrypts data per block. The formula works on 128-bit, 192-bit, and 256-bit keys. 

Many VPN service providers today pride themselves on their AES cipher algorithms. The National Institute of Standards and Technology (NIST) developed it in 2001, and it is still the most widely trusted cipher for government and civilian applications.

256-bit keys generally provide the most security. Just note that you’ll need massive processing power since converting one batch of encrypted data takes 14 rounds.

But don’t worry, most VPN services only use 128-bit keys.

2. Blowfish

Bruce Schneier founded the Blowfish cipher in 1993. Several VPN services use a Blowfish cipher nowadays, but most tech professionals wouldn’t recommend it over an AES server.

Many users fear it’s too insecure. VPN service providers often use Blowfish ciphers in 64-bit keys, and as we mentioned above, shorter key lengths offer less security.

With that said, you can configure Blowfish ciphers to support 32-bit to 448-bit keys, although encrypting them causes much internet lag. VPN services would stick to 64-bit keys for functionality instead.

However, you shouldn’t ignore Blowfish ciphers altogether. They convert ciphertext much faster and reduce page bloating. Also, you might not even need 256-bit keys if you never transfer more than 4 GB of data.

3. Camellia

Mitsubishi and NTT founded the Camellia cipher in 2000. Similar to AES, it uses symmetric-key formulas to encrypt and decrypt data blocks. 

The key lengths come in three variations: 128-bit, 192-bit, and 256-bit keys. Although converting 128-bit keys requires 18 rounds, it has an arguably more streamlined, conservative design.

At a glance, Camellia seems just as functional as the AES. However, since it has not been certified by the National Institute of Standards and Technology (NIST) yet, many VPN clients feel iffy about using it. 

VPN tunneling protocols: encapsulation and encryption used

If you’ve used several VPNs before, you might have noticed a difference in performance between them. For instance, some slow down your internet, while others can’t circumvent firewalls.

Although multiple factors affect a VPN service’s performance, the most crucial one is the tunneling protocol used. The speed, security, and anonymity of your VPN heavily depends on its tunnel.

Familiarize yourself with these protocols. That way, instead of judging VPN services based on branding, you can assess if their tunneling protocol’s encryption and encapsulation methods align with your needs.

1. Point-to-Point Tunneling Protocol (PPTP)

PPTP stands as the oldest VPN tunneling protocol. Microsoft, Ascend, and 3COM created the PPTP protocol as a VPN service for dial-up internet connections in the early 2000s.

It paved the way for the several VPN servers we use today. However, PPTP has become an obsolete tunneling protocol, and you should never use any VPN service that still runs it.

With a PPTP tunnel, your service provider encapsulates PPP frames in IP datagrams and encrypts them with Microsoft Point-to-Point Encryption (MPPE) methods.

Unfortunately, crooks can quickly brute-force hack MPPE encrypted data nowadays. Also, most websites can detect and block traffic running through TCP port 1723 IP datagrams.

2. Layer 2 Tunneling Protocol (L2TP)

Microsoft and Cisco released the first version of the L2TP in 1999. They intended for it to replace the PPTP tunneling protocol once insecurities and vulnerabilities emerged.

As its name suggests, L2TP encapsulates PPP frames twice: once in IP datagrams and again in IPsec Encapsulating Security Payload (ESP). As for encryption, it implements IPsec encryption through an authentication suite.

Based on the L2TP algorithm alone, you could immediately tell that it provides more security and anonymity than a PPTP protocol. However, it no longer stands as the most robust, functional protocol nowadays.

L2TP runs traffic through the UDP port 500—which, unfortunately, most modern web admins can block and detect. Also, double-layering significantly slows down your internet connection.

It still provides security, of course. Just don’t expect your L2TP VPN service provider to load pages swiftly or bypass firewalls.

3. Internet Key Exchange version 2 (IKEv2)

Microsoft and Cisco developed the IKEv2 in 2005. Compared to IKEv1, IKEv2 provides a more secure, reliable VPN tunnel since it uses more advanced algorithms like AES and IPsec.

Bear in mind that the IKEv2 doesn’t operate independently. It uses an authentication suite like IPsec ESP to encapsulate and encrypt PPP frames.

At a glance, you might think that the IKEv2 and L2TP protocols are the same. Yes, they both run encryption and encapsulation methods through authentication suits, plus they can’t circumvent firewalls.

However, an IKEv2 protocol processes data faster. It only encapsulates PPP frames once to reduce page bloating.

Also, IKEv2 supports Mobility and Multihoming Protocol (MOBIKE). It lets your VPN service maintain a server connection even while switching addresses.

Simply put, MOBIKE technology lets your device stay connected to the VPN server even if your internet connection keeps getting disconnected. Alternatively, L2TP protocols would need manual reconnection.

4. Secure Socket Tunneling Protocol (SSTP)

Microsoft developed the SSTP for its Windows Vista OS in 2007. Despite its proprietary restrictions, users hail the SSTP since it uses encryption methods above industry standards.

SSL 3.0 encryption methods are very hard to decode. Even skilled hackers using advanced brute-force attack technologies would need millions of years to decode just one line of encrypted data.

Another upside of an SSTP VPN is it encapsulates traffic through the TCP port 443, which is essentially what billions of people use to surf the web. As such, websites will struggle to block and detect it.

Since VPN services using SSTP methods can easily circumvent firewalls and geo-restrictions, you can access almost any content anonymously.

Just bear in mind that SSTP only works with Windows devices. Unfortunately, we don’t foresee Microsoft lifting device restrictions from its proprietary protocol any time soon.

5. OpenVPN

Most cybersecurity professionals would advise you to use OpenVPN whenever possible. Why? Because it provides the highest form of security, hides your traffic effectively, and provides an open-source code available for public inspection.

OpenVPN uses AES-256 bit exchange on standard open SSL libraries and TLS protocols. It also encapsulates traffic through TCP port 443, thus bypassing most website restrictions and firewalls.

The only downside is that installing OpenVPN requires some technical knowledge. Although VPN services provide OpenVPN installers out of the box, beginners with no prior tech experience might still feel intimidated.

Overall, we recommend OpenVPN protocols for experienced digital natives who want a secure, customizable platform. Again, it features an open-source platform, so you can freely customize it.

6. WireGuard

Jason A. Donenfeld founded WireGuard VPN in 2018. He openly states that WireGuard endeavors to provide better usability and functionality than its OpenVPN and IKEv2 counterparts.

As you might have noticed, both these protocols run hyper-complex systems. Although secure, they barely function on devices using fair to poor internet connections.

Lengthy encapsulation significantly slows down the internet speed. It might not work well on slow, unreliable public networks—defeating the purpose of using VPNs for security.

Meanwhile, advanced encryption methods cause the server to disconnect when switching addresses. More simply put, you’ll have to restart your VPN manually if you get disconnected from the internet—which is a hassle when using spotty internet (i.e., mobile data, hotspots).

WireGuard, on the other hand, streamlined its instructions. Since it has 1% of the codebase of OpenVPN and IKEv2 protocols, it runs much faster on various devices. 

However, remember that WireGuard is relatively new. We can’t compare it to the long-standing pioneers of VPN technologies yet.

The importance of VPN encryption keys

Now that you understand how encryption and encapsulation create a secure proxy tunnel, let’s assess the real-world application of a VPN service.

Third parties like government agencies, website admins, and internet service providers constantly check your browsing activity. 

By law, they can’t abuse your personal data. But let’s face it—you can’t stop shady websites from stealing and misusing your personal information for illicit purposes.

Fortunately, this is where VPNs come in helpful. 

A VPN service isn’t the end-be-all solution to data privacy. However, it protects your personal information by redirecting your traffic through a proxy server and scrambling your data through encryption keys.

So, what happens if a third party snoops in on your session? Nothing. Encrypted data will only appear as indecipherable, useless text blocks.

Crooks can try decrypting the text. However, encryption keys and cipher formulas should technically take years to decode via brute force methods.

Different types of VPN encryption methods

Although ciphers refer to the sets of instructions that automatically encrypt and decrypt data, don’t confuse them for encryption. AES, Blowfish, and Camellia use different encryption methods based on the tunnels of their service providers.

Ciphers typically use the following encryption methods:

1. Symmetric Key

A symmetric key, otherwise known as secret key, encryption uses a single key to encrypt and decrypt data. Essentially, the key only works for the request sender and receiver.

Most VPN services use symmetric key encryption methods for their speed. Converting ciphertext into plain text automatically cripples the internet, but at least using a single key minimizes the required processing power.

2. Public Key

The public key, also known as asymmetric key, encryption relies on public and private keys. Public keys encode data, and private keys decode them.

For instance, if you use a VPN with asymmetric-key encryption, the VPN encrypts your data using public keys. However, the receiving server needs your private key to decrypt your request.

It’s generally secure. However, this encryption method relies on hyper-complex algorithms, which significantly slow down the internet speed.

3. Secure Hash Algorithm (SHA)

SHA encryption verifies your requests’ destinations. They run requests through a fixed formula before establishing an encrypted, encapsulated tunnel.

Doing so prevents crooks from redirecting your traffic. An SHA-enabled VPN will immediately halt requests destined for insecure, unverified sources.

You’ll generally come across VPNs using SHA1 to SHA3 standards. The NIST only recommends SHA2 and SHA3 formulas since the first two have already become obsolete.

4. Handshake Encryption (RSA)

RSA encryption is a form of asymmetric key encryption wherein you establish a different set of keys every time you connect to the server. Again, encryption keys are public, and decryption keys are private.

Handshake Encryption (RSA) is relatively secure. However, the need to create several sets of keys throughout multiple sessions significantly decreases your internet speed.

Testing your VPN encryption methods

Before entrusting your privacy and security to a VPN service provider, you’d do well to test its tunnel. Don’t blindly trust a VPN that bypasses geo-restrictions.

As we explained, encryption differs from encapsulation. And unbeknownst to many, crooks trick consumers into paying premium rates for so-called secure, encrypted VPN servers.

Who knows? Some of the heavily promoted apps you see online might not even encrypt data properly. Again, many use VPNs without wholly understanding them; scammers won’t run out of victims.

There are generally three levels of VPN encryption testing, namely:

Basic: IP address confirmation

Your IP address serves as your online identity. It tells third parties your device, recent search engine entries, surfing habits, and even physical address. 

So as a VPN client, you’d naturally want to hide your IP address. Fortunately, you can quickly test whether your VPN actually assigns you a new address by using an IP address checker and DNS leak tester.

First, check your IP address at What is My IP Address. Next, turn on your VPN. Once the page reloads, it should show a completely different IP address and location.

Second, verify if your VPN hides server requests at DNS Leak Test. Just start the test, and the system will tell you if your ISP’s DNS servers receive requests using your real or fake IP address.

Intermediate: Server request assessment

Your device typically sends encrypted HTTP traffic to web servers. Although HTTPS websites encrypt in-transit data, they immediately decrypt it afterward.

With a VPN, your device will send encrypted traffic right from the get-go. Your personal information and data stay safe, regardless of whether the receiving server has an SSL certificate or not.

To test the efficacy of your VPN’s proxy tunnel, run GlassWire. It assesses the traffic coming from your device and tells you if it’s encrypted.

Advanced: Data packet assessment

Every time you perform an action online, your device sends a request to website servers. They should send the requested content if no firewalls block your IP address.

Web admins can see your online identity. But if you’re using a VPN, all the information they’d normally access should be encrypted and indecipherable.

Do you want to see whether servers really receive encrypted data? If so, download Wireshark.

It assesses every data packet that comes from your device and lets you view them from the POV of a third party. 

If the results return as gibberish, your VPN is working. However, if you see your IP address, server request, or recent actions performed, your VPN doesn’t encrypt your requests properly.

How VPNs protect you against identity theft

VPN services redirect your traffic through an encrypted proxy tunnel to prevent third parties from accessing it. You’ll remain anonymous on VPN servers.

Encapsulation masks your traffic, and encryption scrambles your data. Ciphers can only decrypt your encrypted data packets once they reach their destination, but even then, your request will remain encapsulated for anonymity.

However, we want to emphasize that VPN servers aren’t your best defense against identity theft. Again, proxy tunnels only mask your traffic.

To combat identity theft, get an antivirus software program, review your credit reports, sign up for dark web monitoring services, and, most importantly, double-check websites before divulging personal information.

The best VPN services in 2022

You finally understand how VPN services encrypt and encapsulate your traffic through proxy tunnels. Now, you’re ready to use a VPN.

While skimming your options, you realized that extensively analyzing apps will take forever. And you don’t have the time to test VPN services for encryption.

Don’t worry—we can give you a helpful starting point. Some of the most widely known and trusted VPN service providers include:

• NordVPN: Thanks to the OpenVPN and IKEv2 tunneling protocols of NordVPN, it currently ranks among the fastest-loading servers today. You can use it with ease, even on public networks. Annual rates start at $199, although it offers several discounts all year long on its site.
• Surfshark: If you want customizable features, try Surfshark. It offers an OpenVPN tunneling protocol that runs through TCP and UDP ports, so you’ll have several options for simultaneous connections. Pricing starts at $155 per annum, but you can get up to 50% off by opting for annual billing.
• PrivateVPN: For users who want an affordable way to explore different tunneling protocols, you’d like PrivateVPN. It supports OpenVPN, L2TP, IPsec, and IKEv2. Annual rates start at $108, but you can bring it down to 30% if you opt for annual billing.

When in doubt, please refer to testimonials. Online reviews will give you a simple point of reference, but actual users can provide first-hand insights.

Choosing VPN encryption suited to your needs 

Many VPN clients might never need to understand how tunneling works. VPN service providers nowadays focus on creating user-friendly, navigable apps that even newbies can use.

However, you can’t control your VPN server that way. To assess a tunnel protocol’s features, you must first understand VPN encryption and encapsulation methods.

For instance, if you have prior tech knowledge and want a highly secure VPN that circumvents firewalls, opt for OpenVPN tunneling. Third-party apps can even host the set-up for you.

Alternatively, users who want a convenient, hassle-free VPN can opt for IKEv2 or WireGuard tunneling protocols. 

An OpenVPN provides better privacy. But IKEv2 and WireGuard servers load pages faster, eliminate heavy codebases causing page bloat, and require zero manual configuration.

Whatever the case, find a system that addresses your data privacy needs.